The fund industry is a giant marketing since the mid-1980 was. Billions of dollars were paid into investment funds, but the decision of many investors may cost more than they realized. There are several reasons why mutual funds are not all what the market is.
Underperformance.
From 1992 to 2002, growth-oriented funds, on average, by 8.5%, compared to Average annual return of 9.68% for the S & P 500 Index. In fact, in a given year, some funds not be better than the market, but most are. In addition to selling, the funds average investors generally seek to finance low-income, the fund has heavily best record, which binds only the reimbursement, sales and taxes, which makes the search time performance even lower.
Transparency.
Currently, mutualFunds> Annual Report on their farms, half-yearly or quarterly. At that time, the owner of the land in possession of such relationship, the Fund's assets are likely to change radically. It 'also common for funds to dress up the window of their holdings shortly before the publication of a report.
Transparency of fees and charges is also a problem of mutual funds. While management fees and expenses of sale are already widely used, other expenses, such as 12b-1 fees, and negotiations are often difficult to discover. Most of the owners of the fund are not aware that any mutual fund is suitable for trade negotiations, a fee charged to the fund, and is still in his return to investors.
Lack of access to your money manager.
Most mutual fund investors know that their brokers or financial advisors and planners to talk regularly with them. However, these professionals have no control or influence over the underlying securities held by a> Mutual Funds. The fund manager is in the final analysis, control the selection of investments and the average investor has no access to that person.
Greater diversification.
Investment funds are obligated by law to "diversify" 75% of its assets. Diversification is not more than 5% of the portfolio in a single security is defined and not more than 10% of the outstanding shares of such security. Due to the size of some funds, many fund managersare forced to more than 100 different levels of investment, with funds larger, with locations in more than 175 people. This means that the fund manager has 175 parties, who thinks "great buying opportunity? Unlikely. The fund manager is often forced to buy stocks of lower quality for the Protection Fund" diversified ".
Overlay Fund.
Many investors in equity mutual fund invested in different funds. Perhaps the investor has acquiredGrowth Fund, a balanced fund and a stock of small caps. The investor is surprised that many shares are held in the hands of a fund from other funds. However, this is usually the case. Investors may have tried to diversify into different funds in order to see the same stocks over and over again.
Cash needs.
The prospect of an investment fund to the minimum and maximum cash fund can prove to be taken into account. The Fundthese self-imposed duty. This limits the possibilities thanks to the managers of mutual funds in times of market. In addition to moving the bear, "the markets, investors cautious about their investments into cash positions and more important.
At the peak of the market in 2000, the average investment was only 4% of their portfolio in cash. This figure is exceeded subject to 6% once a month for two years for the stock market. The S & P 500 has lost nearly half its value, but halfAdministrators were forced to wait, or lose your position in a population is plummeting in value or sale of shares and other persons who are likely to lose value than buying two.
What is the problem, the majority of the shares that were sold by the Fund during the bear market, sold a net profit of its original purchase price, even if they had fallen in value this year. At the end of the year, investors have seen their portfolios, not only the most dramatic loss of value, butWere also a liability for capital gains. Speaking of taxes.
Taxes.
With mutual funds, the investor is exposed to two different tax situations. The first is the tax on capital gains from rising prices of basic cost to investors of the fund. When an investor buys a fund of $ 10 per share and then sold the fund to $ 11 per share, the investor must pay taxes on capital gains of $ 1 per share.
The second charge, which oftenoverlooked by investors, the distribution of capital gains, as places of mutual funds to its shareholders once a year. These distributions are not given to the shareholders equity was granted on capital gains, but for the shareholders on distribution. When an investor buys a fund, the investor is also responsible for the revenue of the entire capital since the last required distribution.
For example, ABC sells mutual fundsOperational on 1 May a profit. Jane investor buys 100 shares of ABC Mutual Fund on 1 July. John investors originally bought 100 shares of ABC funds, January 1, sells all its shares on 1 August. Guess who's coming to the capital increase of 1 can be paid? Jane, if the distribution of profits at the end of this year.
According to a statement by the SEC in 2006, investors in mutual funds lose 2.5% of your tax returnbegan on capital gains annually. Although these fees should be included in the prospectus of a fund to be disclosed, these prices are often determined by the performance of the fund prospectuses and advertisements excluded.
What investors in alternative investment funds?
For investors with over $ 100,000 in search of investment opportunities, separate accounts are an excellent alternative. These accounts are managed by professional managers, with whom theInvestors often have a direct access. In a separate account, the investor owns the underlying security has greater control when it comes to taxes, and full transparency of investments. In addition, separate account management fees, which are often lower than mutual funds and have little or no additional cost or expenses that may affect the performance of the portfolio are
Investment funds are very popular and likely to benefit investors.But for the smart investor, looking for separate accounts to achieve diversification is often mutual funds, avoiding the inherent lack of funds.